Great Reset Part II – Uncomfortable truth: Consumers help kill jobs

EDITOR’S NOTE: This is the second in a series on the loss of middle-class jobs in the wake of the Great Recession, and the role of technology.

While millions of jobs in developed countries have been lost due to the economic downturn and the increased use of technology, developing economies have been spared the technological onslaught – for now.
Countries like Brazil and China are still growing middle-class jobs because they’re shifting from export-driven to consumer-based economies. But even they are beginning to use more machines in manufacturing. The cheap labor they relied on to make goods from apparel to electronics is no longer so cheap as their living standards rise.
One example is Sunbird Engineering, a Hong Kong firm that makes mirror frames for heavy trucks at a factory in southern China. Salaries at its plant in Dongguan have nearly tripled from $80 a month in 2005 to $225 today. “Automation is the obvious next step,” CEO Bill Pike says.
Sunbird is installing robotic arms that drill screws into a mirror assembly, work now done by hand. The machinery will allow the company to eliminate two positions on a 13-person assembly line. Pike hopes that additional automation will allow the company to reduce another five or six jobs from the line.
“By automating, we can outlive the labor cost increases inevitable in China,” Pike says. “Those who automate in China will win the battle of increased costs.”
Foxconn Technology Group, which assembles iPhones at factories in China, unveiled plans in 2011 to install one million robots over three years.
A recent headline in the China Daily newspaper: “Chinese robot wars set to erupt.”
Candidates for U.S. president last year never tired of telling Americans how jobs were being shipped overseas. China, with its vast army of cheaper labor and low-value currency, was easy to blame.
But most jobs cut in the U.S. and Europe weren’t moved. No one got them. They vanished. And the villain in this story – a clever software engineer working in Silicon Valley or the high-tech hub around Heidelberg, Germany – isn’t so easy to hate.
“It doesn’t have political appeal to say the reason we have a problem is we’re so successful in technology,” says Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University. “There’s no enemy there.”
Unless you count family and friends and the person staring at you in the mirror. The uncomfortable truth is technology is killing jobs with the help of ordinary consumers by enabling them to quickly do tasks that workers used to do full time, for salaries.
Use a self-checkout lane at the supermarket or drugstore? A worker behind a cash register used to do that.
Buy clothes without visiting a store? You’ve taken work from a salesman.
Click “accept” in an email invitation to attend a meeting? You’ve pushed an office assistant closer to unemployment.
Book your vacation using an online program? You’ve helped lay off a travel agent. Perhaps at American Express Co., which announced last month that it plans to cut 5,400 jobs, mainly in its travel business, as more of its customers shift to online portals to plan trips.
Software is picking out worrisome blots in medical scans, running trains without conductors, driving cars without drivers, spotting profits in stocks trades in milliseconds, analyzing Twitter traffic to tell where to sell certain snacks, sifting through documents for evidence in court cases, recording power usage beamed from digital utility meters at millions of homes, and sorting returned library books.
Technology gives rise to “cheaper products and cool services,” says David Autor, an economist at MIT, one of the first to document tech’s role in cutting jobs. “But if you lose your job, that is slim compensation.”
Even the most commonplace technologies – take, say, email – are making it tough for workers to get jobs, including ones with MBAs, like Roshanne Redmond, a former project manager at a commercial real estate developer.
“I used to get on the phone, talk to a secretary and coordinate calendars,” Redmond says. “Now, things are done by computer.”
Technology is used by companies to run leaner and smarter in good times and bad, but never more than in bad. In a recession, sales fall and companies cut jobs to save money. Then they turn to technology to do tasks people used to do. And that’s when it hits them: They realize they don’t have to re-hire the humans when business improves, or at least not as many.
The Hackett Group, a consultant on back-office jobs, estimates 2 million of them in finance, human resources, information technology and procurement have disappeared in the U.S. and Europe since the Great Recession. It pins the blame for more than half of the losses on technology. These are jobs that used to fill cubicles at almost every company – clerks paying bills and ordering supplies, benefits managers filing health-care forms and IT experts helping with computer crashes.
“The effect of (technology) on white-collar jobs is huge, but it’s not obvious,” says MIT’s McAfee. Companies “don’t put out a press release saying we’re not hiring again because of machines.”
HOPE FOR THE FUTURE?
Historically, new companies and new industries have been the incubator of new jobs. Start-up companies no more than five years old are big sources of new jobs in developed economies. In the U.S., they accounted for 99 percent of new private sector jobs in 2005, according to a study by the University of Maryland’s John Haltiwanger and two other economists.
But even these companies are hiring fewer people. The average new business employed 4.7 workers when it opened its doors in 2011, down from 7.6 in the 1990s, according to a Labor Department study released last March.
Technology is probably to blame, wrote the report’s authors, Eleanor Choi and James Spletzer. Entrepreneurs no longer need people to do clerical and administrative tasks to help them get their businesses off the ground.
In the old days – say, 10 years ago – “you’d need an assistant pretty early to coordinate everything – or you’d pay a huge opportunity cost for the entrepreneur or the president to set up a meeting,” says Jeff Connally, CEO of CMIT Solutions, a technology consultancy to small businesses.
Now technology means “you can look at your calendar and everybody else’s calendar and – bing! – you’ve set up a meeting.” So no assistant gets hired.
Entrepreneur Andrew Schrage started the financial advice website Money Crashers in 2009 with a partner and one freelance writer. The bare-bones start-up was only possible, Schrage says, because of technology that allowed the company to get online help with accounting and payroll and other support functions without hiring staff.
“Had I not had access to cloud computing and outsourcing, I estimate that I would have needed 5-10 employees to begin this venture,” Schrage says. “I doubt I would have been able to launch my business.”
Technological innovations have been throwing people out of jobs for centuries. But they eventually created more work, and greater wealth, than they destroyed. Ford, the author and software engineer, thinks there is reason to believe that this time will be different. He sees virtually no end to the inroads of computers into the workplace. Eventually, he says, software will threaten the livelihoods of doctors, lawyers and other highly skilled professionals.
Many economists are encouraged by history and think the gains eventually will outweigh the losses. But even they have doubts.
“What’s different this time is that digital technologies show up in every corner of the economy,” says McAfee, a self-described “digital optimist.” ‘’Your tablet (computer) is just two or three years old, and it’s already taken over our lives.”
Peter Lindert, an economist at the University of California, Davis, says the computer is more destructive than innovations in the Industrial Revolution because the pace at which it is upending industries makes it hard for people to adapt.
Occupations that provided middle-class lifestyles for generations can disappear in a few years. Utility meter readers are just one example. As power companies began installing so-called smart readers outside homes, the number of meter readers in the U.S. plunged from 56,000 in 2001 to 36,000 in 2010, according to the Labor Department.
In 10 years? That number is expected to be zero.
NEXT: Practically human: Can smart machines do your job?